Reece shares (ASX: REH) rallied 13.92% today despite reporting a 20% profit decline, as markets responded positively to results that exceeded analyst forecasts amid challenging housing market conditions.
The Reece share price closed out the day at A$15.88, up 13.92%, making the plumbing and bathroom supplies distributor the leading constituent on the ASX 200 for the session. The sharp rally reflects market relief that the company’s profit decline was less severe than anticipated, with the stock recovering from recent weakness as affordability pressures continue to weigh on residential construction across both hemispheres.
Financial Performance Under Pressure
The company reported sales revenue of $4,648 million for the half-year ending 31 December 2025, representing a 6% increase from the prior corresponding period. However, profitability came under significant pressure, with net profit after tax falling 20% to $144 million and earnings per share declining 19% to 22.7 cents.
The profit result, while materially lower year-on-year, came in ahead of Morgans’ forecast of a 22.9% decline to $139.5 million. EBITDA decreased 6% to $448 million, reflecting margin compression as the company navigated subdued demand conditions while continuing its network expansion strategy.
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Like-for-like sales remained flat across the group, with the 6% revenue growth entirely attributable to the addition of 23 net new branches across Australia, New Zealand, and the United States. The company maintained its capital expenditure discipline with a capex-to-sales ratio of 1.8%.
Reece declared an interim dividend of 5.44 cents per share, fully franked, down from 6.50 cents in the previous period, aligning the payout with reduced earnings.
The Australia and New Zealand business generated sales revenue of $2,062 million, up 4%, while adding four net new branches to reach a total of 680 locations. However, EBITDA in the region declined 4% to $261 million, and EBIT fell 7% to $172 million as margin pressures intensified.
The US operations, which have become increasingly important to Reece’s growth strategy, posted sales revenue of US$1,696 million, up 6%. The company aggressively expanded its American footprint by adding 19 net new branches, bringing the total to 286. Despite the top-line growth, US profitability faced headwinds with EBITDA down 9% to US$123 million and EBIT declining 26% to US$55 million.
Strategic Priorities
Reece continues to execute on three core strategic pillars: operational excellence, accelerating innovation, and investing for profitable growth. During the half-year period, the company enhanced its digital capabilities for both employees and customers while introducing new product lines to drive market share gains.
The company also returned substantial capital to shareholders through buybacks totalling $401 million, including a completed $365 million off-market component and $35 million of an authorised $85 million on-market program. This aggressive capital management contributed to an increase in net debt to $1.0 billion, with the net leverage ratio rising to 1.5 times from 0.8 times at the end of fiscal 2025.
Chair and CEO Peter Wilson acknowledged the difficult operating environment facing the business.
“Our half year result reflects the challenges we outlined last year, with subdued housing markets continuing to impact demand resulting in flat sales on a like for like basis,” Wilson said. “In our ANZ business, we have seen signs of a gradual recovery emerging, but performance remains mixed across states. In the US, the residential new construction market is still being impacted by affordability pressures.”
Wilson’s comments underscore the dual challenge facing Reece: managing through cyclical weakness in core markets while positioning the business for the eventual recovery through continued investment in network expansion and digital capabilities.
The increase in net debt to $1.0 billion warrants attention from markets, particularly given the company’s simultaneous commitment to returning capital through buybacks. Lower operating cash flow during the period, combined with funding requirements for the share repurchase program, drove the leverage ratio higher.
While the 1.5 times net leverage remains manageable and provides headroom for continued investment, the trajectory bears monitoring should housing market conditions deteriorate further or remain subdued for an extended period. The company’s capital allocation decisions suggest management confidence in the medium-term recovery thesis.
Housing Market Outlook Mixed
Reece’s performance is intrinsically linked to residential construction activity, which faces distinct challenges across its two key markets. In Australia and New Zealand, high interest rates and affordability constraints have dampened new home construction, though management noted emerging signs of gradual recovery with mixed performance across states.
The US residential market presents a more complex picture. While underlying housing demand remains robust due to demographic trends and housing shortages, elevated mortgage rates continue to suppress affordability and constrain new construction activity. The company’s aggressive US expansion strategy reflects a long-term conviction in the market’s growth potential despite near-term headwinds.
Reece’s decision to add 23 net new branches during a period of subdued like-for-like sales represents a deliberate counter-cyclical investment strategy. By expanding its physical footprint while competitors potentially retrench, the company aims to capture market share and establish positions in strategic locations ahead of an eventual market recovery.
This approach carries execution risk, particularly in the US where the company is still building brand recognition and operational scale. The 26% decline in US EBIT demonstrates the near-term profitability pressure associated with this expansion, though management appears willing to accept compressed margins to secure long-term strategic positioning.
As the day drew to a close, Reece’s 13.92% share price gain reflects market appreciation for results that, while clearly challenged, demonstrated resilience beyond analyst expectations and management’s willingness to invest through the cycle. The bounce off September’s low now stands above 55%, with momentum clearly behind the bulls at this stage. Despite what has been an impressive move in the past half year, shares remain 16.6% lower on a 1 year basis, setting up an interesting period ahead.
